Krugman describes Taylor as conjuring up the Confidence fairy and notes that austerity isn't working out so well in the UK currently.

It seems despite the economic crisis and 3 decades of budget deficits, conservatives have successfully put Keynesianism under trial, rather than supply-side economics. Despite the tepid job growth (the number on Friday is still below the monthly average for much of the '90s), there's some optimism, assuming oil prices doesn't derail things.

If the unemployment situation is markedly improved by next year's election, Republicans will obviously deny that the administration's fiscal policies along with the Fed's actions led to the improvement. Or they will take credit for making Obama extend the tax cuts for another two years along with cutting spending. Or they will say things would have been better without the stimulus, health care reform and the bank and auto industry bailouts.

I see it as more of in any situation, America loses - the economy reverses, Obama get's blamed due the superior Republican spin machine, the economy improves, the Republicans claim its their spending cuts which did it.

Austerity is the flip side of the business cycle, the part where those who have successfully hoarded liquidity from the preceding manic boom cycle side can now make the most of it. The relationship between capital and labor switches away from the hearts and flowers phase to the pound the bitch phase. I didn't just make that up- it's been that way since long before any of us were born.

Perception of how that works depends largely on being able to misrepresent how it came to be that way, like this-

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“I have deep concerns that an unconfirmed political appointee is making calls that affect the safety and soundness of our financial institutions,” Mr. Garrett said in a statement. “This is another attempt by the Obama administration to circumvent the rule of law and unilaterally implement its failed housing agenda at the expense of responsible homeowners.”

Obama's failed housing agenda? Shee-it, Sherlock- The Bush housing agenda was in freefall before Obama ever took office, and the whole financial sector along with it.

And it also depends on the ability of those at the top to convince the rest of us that everybody but them needs to take the hit for the situation they created in the exercise of unrestrained greed. Raising taxes at the top couldn't possibly be part of the solution, because they need that money to, uhh, create jobs, yeh, that's it. Not that it's worked that way for the last 30 years, but they'll keep pitching it as long as the electorate is willing to take a swing at that spitball.

Krugman is right to call it the "confidence fairy" since very few businesses actually make their decisions based on whether the government is balancing its books or not. If anything far more businesses are dependent on government deficit spending than are hurt by it. Government borrowing costs are still at historic lows. These GOP proposals are only going to cut the budget by a fraction of the deficit and are mostly just ideological hitjobs on things the GOP does not like, ya know like food stamps and subsidized baby formula for infants and the family planning services (birth control and condom distribution, not abortion) that might prevent that infant whom the parent's can't afford to feed from being conceived in the first place.

Austerity is not working out for the British or the Irish or the Greeks. It is a bad policy when joblessness is high because it serves primarily to protect two groups: Those that lend the governments money and the super-rich that don't want higher taxes or a crackdown on their tax dodging to cover the deficits that their financial shenanigans largely created. Both of those groups tend to be the ones that should be taking a haircut in times of crisis, first the wealthy 1% that now controls 40% of the wealth and 24% of the after-tax income in the US, and in the case of the Greeks and the Irish, they should have told the foreign banks to take a haircut on their loans, especially the Irish because it was not government debt until their corrupt former government bailed out their banks in order to keep foreign banks from taking a hit.

Some indicators are coming in weak now, after a good jobs report earlier this month. Some anticipation that because of poor weather, high oil/gas prices, the tsunami/Fukushima (Toyota and Honda production is down 10% for the quarter) and various other factors, the dreaded double-dip scenario is being talked up.

QE2 is definitely ending in June, GDP revised down to 1.8%.

Krugman is talking more about the Long Depression scenario. Not the Great Depression but an extended period of stagnancy in the 19th century. There will be some nominal growth but not to make up for the Great Recession. Millions may lose the rest of their productive work years before trend growth returns.

Jobs report issued in May, for April, showed higher than expected gains, particularly in manufacturing as the lower dollar led to increased exports. Yet, despite the conservative criticism that govt. deficit-spending was creating these fake jobs, the fact is that in the past year, 404,000 govt. jobs have been lost, a lot of it coming at the state and local level.

Another concern is that state and local cutbacks continue to drag down the labor market. Government employers shed 24,000 jobs in April, with 14,000 of those lost at the local level. These cut-backs are hitting women especially hard: Women have lost nearly two-thirds of all the 404,000 jobs lost in government over the past year.

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The recovery continues to create jobs for men, but not women. Since the recession officially ended in June 2009, men have added 746,000 jobs, while women have actually lost 211,000 jobs. Much of the difference by gender is due to the fact that women are more likely to be employed by state and local governments, which are engaged in significant layoffs in the wake of the nationwide budget crunch. But women also are losing jobs across most private industries. Since the recession ended, men have gained 152,000 retail and 15,000 finance jobs, while women have lost 154,000 retail and 152,000 finance jobs.

So while all these govt. jobs were being lost, there has still been positive job growth, though not high enough to make up for the job losses during the Great Recession. But as the effects of the stimulus and QE2 wane, will there be continued growth?

Conservative economists say what they have to say to keep the focus on taxes as being the root of all evil. It's much less science than political art, anyway, so it's best to not pay attention to those, of any persuasion, who pretend to interpret the raw statistics compiled by the various agencies and foundations.

Meh. We had a period of unsustainable top-directed "growth"- the housing bubble and two wars, with lots of very poorly allocated resources. When it all fell down, we were left with an enormous pool of unemployment and near record corporate profits. Given that our capitalists have figured out how to make more money creating fewer domestic jobs, it seems unlikely that the employment picture will improve much any time RSN. Why would it?

The current business climate is very much along the lines of "I got mine, and I'm not taking any chances. I don't need to hire anybody."

What job growth there is barely keeps up with population increase, if that.

The smartest thing to do is develop our economy to the greatest degree of efficiency to allow the greatest personal prosperity for the greatest number without requiring constant sustained but unsustainable growth.

The smartest thing to do is develop our economy to the greatest degree of efficiency to allow the greatest personal prosperity for the greatest number without requiring constant sustained but unsustainable growth.

Not to be terribly argumentative, but the kind of "austerity" you're talking about needs to start from the top down, and that's not what's being offered at all. A great deal of what's been represented as "growth" over the last 30 years has just been a shifting of income and assets to the top, papered over with debt at every level other than there. The peddlers of today's version of austerity have zero intention of reversing that, but rather of intensifying it. They see the greatest personal prosperity for a much more limited number of people as the desired outcome. They want their cut off the top, a very big cut, to be maintained (increased!) regardless of the outcomes for the rest of us. They depend heavily on our not realizing that, and base their pitch on the concept of infinite resources, something so ingrained in the American psyche that we somehow can't recall that the frontier closed over 100 years ago, and what that means.

One of the more prolific MMT bloggers, Billy Blog* has been writing with some frequency on the downsides of Austerity measures for countries with sovereign monetary policy (US/UK) and those without.

The articles are long. Just some nuggets with links:

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Austerity programs by national governments, which will surely worsen the already excessive unemployment, have no authority. They have convinced us that that quantitative easing in some way puts more spending power into the hands of consumers and thus fuels inflation. An asset swap among savers is not inflationary.

The overall conclusion is that a default lowers GDP growth in the first year rather sharply but the negative consequences dissipate quickly after that. Argentina clearly shows that a domestically-focused policy can restore growth after a major default very quickly.

If you compare the estimated GDP losses from the default with the actual losses we are observing in Ireland (since 2009) and Greece (as examples) it is clear the scale of GDP loss is greater in the latter case (by toughing it out and imposing austerity). Ireland has been in recession for more than 2 years and is still sliding backwards. Greece is not far behind.

The smartest thing to do is develop our economy to the greatest degree of efficiency to allow the greatest personal prosperity for the greatest number without requiring constant sustained but unsustainable growth.

I like that video. Reminds me of how small increases in the money supply every year have reduced the value of U.S. dollar to 3% of its original value.

I'd just like to plug the ebook "The great stagnation". It may be that per capita growth in the western world is simply not in the cards for a while for reasons that have little to do with governments policy.

I don't get why the GOP, and to a lesser degree the DNC, get away with ignoring the fact that economic growth in the US has not been shared with the workers who built that economic growth for the past 30 years or so. Why are the workers supposed to only benefit from the availability of new widgets while the executive class not only benefits from the new widgets, but massively increases their wealth?

Why is this not an issue to Americans? Why, when it is brought up as an issue, is it in the terms of "How can we help the executive class become wealthier?" In real terms the tax rate varies from 31% on the bottom 20% to 34% on the 60-80%, dropping to 33% for the top 20%, of the population. Why does everybody accept it as common wisdom that the executive class is being taxed to death?

I don't get why the GOP, and to a lesser degree the DNC, get away with ignoring the fact that economic growth in the US has not been shared with the workers who built that economic growth for the past 30 years or so. Why are the workers supposed to only benefit from the availability of new widgets while the executive class not only benefits from the new widgets, but massively increases their wealth?

Why is this not an issue to Americans? Why, when it is brought up as an issue, is it in the terms of "How can we help the executive class become wealthier?" In real terms the tax rate varies from 31% on the bottom 20% to 34% on the 60-80%, dropping to 33% for the top 20%, of the population. Why does everybody accept it as common wisdom that the executive class is being taxed to death?

I like that video. Reminds me of how small increases in the money supply every year have reduced the value of U.S. dollar to 3% of its original value.

That's bound to happen with time... if you invested $1 when Jesus was born at 4% interest per year, you'd now have 1.795 * 10^34 dollars - or roughly 18 decillion dollars. That's 300 quintillion (3*10^20) times current global GDP. Don't spend it all at once.

Those calculations are kind of fun, but really not meaningful. Yes, a dollar used to be worth a lot more... and people also earned much less. The $1 was maybe the wage for 6 months of labor - who would have that kind of money saved up? What matters is people's purchasing power, which has most certainly increased noticeably even in the past decade - never mind over the span of a generation.

What matters is people's purchasing power, which has most certainly increased noticeably even in the past decade - never mind over the span of a generation.

Barring items right on the cusp of technological development (like smart phones), are you sure that's true? Food and fuel prices in particular have continued to inflate even as wages have stagnated (in the last 10 years, not in the last generation).

Yes, so even with excessive spending, UK GDP was barely treading water. Do we just keep spending and spending, hoping that our economy sorts itself out before our debt spirals out of control or do we cut back now and hope the knock-on effects aren't too bad?

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First quarter of 2011 was better but not as strong as forecasted, leading to politicians of opposing parties disputing how 2011 GDP will end up:

Iceland's economic downturn was quite severe, though a saving grace was that the employment picture was more stable than the European crisis-countries. Now they appear to be looking forward to some solid growth.

Iceland never socialized their bank debts (mainly because their banks were so outsized relative to the country's economy, they were Too Big to Save) unlike most other countries which faced a banking crisis. Anyone who was owed money by those banks got hair cuts shaved.

When we look back at this period in a few years time, we may see that this was the best possible move for the country (it's not like they had a choice though).

Well I think before UK, we'll see what happens with Greece and Ireland. Or may already be seeing what austerity did to any possibility of growth in those countries.

Sure cut back spending but unfortunately, it may kill growth and cause a decline in treasury receipts, so the deficit/debt isn't closed as planned.

Of course, that's what some like Krugman are saying, that when the economy is still weak is not the time to implement austerity. While job growth has been positive in the past year, there have been 400k govt. jobs cut. Certain cities and regions may have depressed local economies from the losses of those jobs and from businesses which depended on those govt. workers.

What matters is people's purchasing power, which has most certainly increased noticeably even in the past decade - never mind over the span of a generation.

Barring items right on the cusp of technological development (like smart phones), are you sure that's true? Food and fuel prices in particular have continued to inflate even as wages have stagnated (in the last 10 years, not in the last generation).

Post-tax and post-transfers (i.e. welfare) income has increased for all quintiles in real terms over the past 30 years or so. Some analysis reaching other conclusions unfortunately uses pre-transfer data, i.e. what income would be without any welfare. Additionally, the value of health insurance also has to be added to incomes (given that health care today gets you more than it did 30 years ago). There's a good summary of this here: http://inequalitiesblog.wordpress.com/2 ... et-poorer/

You can then adjust this for CPI (there's also an index that includes food/energy, if you're so inclined) and you'll see that the cost of the consumer basket (which is rebalanced to reflect the average modern consumption) has grown less than income. -> people can buy more. According to the link above (it cites a peer-reviewed paper) real income growth from 1979 to 2007 has been 26.4% for the bottom quintile and 52.6% for the top quintile. There's clearly growing inequality (income grew much faster at the top), but everyone got significantly wealthier. Happiness research, however, suggests that relative wealth is far more important than absolute wealth. So people may well be less happy even though they have more money in real terms. That's not an issue with growth, though.

I'd also argue that things like the internet are really hard to quantify. My utility from it isn't limited to what you can measure with GDP or income, nor even with scholarly productivity. There's a lot of non-commercial use in there that is just as much progress as other uses.

To clarify, my question was related to the idea of "purchasing power" as it relates to what is "necessary" (or at least what is perceived as necessary purchases). My demographic is probably making a little more in inflation adjusted dollars than the same demographic in 1950 or 1970, but the amount of money that we spend is so much higher that the increase in income is not resulting in a real improvement in perceived purchasing power. A lot of this is due to inflations in what we consider to be "normal" spending (house sizes going up, families own two cars instead of one, etc), but I can tell you that a lot of people my age (late 20s, early 30s) are trying to maintain lifestyles that they simply cannot afford. They don't view these lifestyles as extravagant, they just have a serious mis-match between what they can realistically purchase with their income and what they think they should be able to purchase given their economic class.

That sounds more like a problem of attitude - rooted in envy and entitlement - rather than an economic problem per se. Furthermore, since more people were lifted out of poverty in the "lost decade" of 2000-10 then in any prior decade in history, it is apparent we are doing something right.

That sounds more like a problem of attitude - rooted in envy and entitlement - rather than an economic problem per se. Furthermore, since more people were lifted out of poverty in the "lost decade" of 2000-10 then in any prior decade in history, it is apparent we are doing something right.

That isn't a problem of "attitude", it is a problem of the inherent primate sense of "fairness", and unless you can redo the Human genome it isn't one that is going away.

I would also note that the poverty levels are laughably low. Good luck living on $10,000/yr in the San Francisco Bay Area, but hey, at least you're above the poverty line....

I am also curious what mythical wealth transfers Soriak was speaking of. I can assure you, as somebody currently in the upper end of the 20-40% quintile, that I pay taxes and receive none of the wealth transfer that Conservatives love to say I am getting. Health care? I don't have any health care, nor will I have any health care any time soon. If I get sick, I wait to get better using over the counter medications.

When did this thread suddenly become about international poverty? I pointed out that it's difficult for middle class Americans to maintain what is widely perceived to be a normal middle class lifestyle, and you're bringing in international poverty rates? It's great that we're bringing people in third world nations out of poverty, but that has nothing to do with my point about the perceived purchasing power of the American middle class going down.

A lot of this is due to inflations in what we consider to be "normal" spending (house sizes going up, families own two cars instead of one, etc), but I can tell you that a lot of people my age (late 20s, early 30s) are trying to maintain lifestyles that they simply cannot afford. They don't view these lifestyles as extravagant, they just have a serious mis-match between what they can realistically purchase with their income and what they think they should be able to purchase given their economic class.

That's their problem then, isn't it? They may see themselves as upper middle class when in fact their parents are, but they themselves are poor. There is no way any economic system or government can deliver everything people think they SHOULD have. How many people do you know that think they have enough and don't want anything else? What is beyond dispute, however, is that people today have more than their parents did at their age. It is not at all surprising that someone in his 20s does not have the same amount of wealth that his parents do - they had roughly 30 years more time to accumulate it.

Karnak wrote:

I am also curious what mythical wealth transfers Soriak was speaking of. I can assure you, as somebody currently in the upper end of the 20-40% quintile, that I pay taxes and receive none of the wealth transfer that Conservatives love to say I am getting. Health care? I don't have any health care, nor will I have any health care any time soon.

Wealth transfers primarily apply to the bottom quintile, who benefit from Medicaid, Food Stamps, etc. You probably benefit from things like the Earned Income Tax Credit (EITC), which is de facto welfare, just paid out through the tax code. While you may not have health insurance through your work, most Americans do - and that's part of the average increase in income. It doesn't apply to everyone, hence the word 'average'.

Yes and no. I'm trying to be up front that this is a mismatch between what they think they should have and what they can actually afford. Unfortunately, anyone trying to live actually middle class (as in actually able to afford their lifestyle on a middle quintile income) will probably be viewed and treated like they are in a lower socio-economic class.

When did this thread suddenly become about international poverty? I pointed out that it's difficult for middle class Americans to maintain what is widely perceived to be a normal middle class lifestyle, and you're bringing in international poverty rates? It's great that we're bringing people in third world nations out of poverty, but that has nothing to do with my point about the perceived purchasing power of the American middle class going down.

I pointed out that the 'widely' perceived perception is based on entitlement and envy, not any actually measurable problem. Karnak then countered with something about fairness. Funny how fairness is always about exactly where you happen to be. In addition to the global poor (which apparently is irrelevant to the fairness analysis) the U.S. poor have also made significant progress in the last generation. Starvation is virtually unknown and clean water is well nigh universally available now.

If you want your parents' lifestyle you can have it. Move to a smaller house, out of in a cheap area. Have one car, no cable, no cell phones. Vacations to local state parks. No weddings that cost tens of thousands of dollars (not too mention engagement parties, bachelor/bachelorette parties, rehearsal dinners, morning after brunches and God knows what else). Board games instead of xboxes and PS3s. Going out to eat is something special you only do once in a great while. And so on.

Well, then we need to figure out what the premise of this thread is. Did the purchasing power of the middle class go up over the last 10-20 years? Then my generation should be able to purchase more than our parents did at this stage in life. My argument is that my generation cannot purchase more than our parents did at this stage in life. A big portion of this is due to an inappropriate inflation of what is considered "normal" spending (bigger houses, more cars, international vacations, etc), but the change in perception is inappropriate because real purchasing power didn't really go up much, if at all. On the contrary, student loans, housing and medical insurance costs more than counter balance any income gains the middle class might have made in the last generation.

They're mostly in the news these days because of volcanoes, but here's a 3-4% nominal GDP growth projection for Iceland for the next couple years:http://www.fxstreet.com/fundamental/ana ... 011/04/12/

Did any other country besides Iceland actually give it's citizens a referendum on whether or not to bailout the banks?

Not that I've ever heard of.

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Well, then we need to figure out what the premise of this thread is.

I thought that it was going to be about the relationship between government austerity measures (and govt spending in general) and growth. Will major spending cuts now kneecap the recovery? What about tax increases? How much longer can we put off balancing government budgets before doing so would become a near-sisyphean effort? Are we already there?

$10,000/yr. Ha! Try $1/day. That's the international definition of poverty, and that is the threshold more human beings crossed in the last decade than any prior decade in history.

Or does your sense of fairness, apparently embedded in your DNA, some how end at at invisible line on a map?

Hear, hear. All the more reason to raise taxes (eventually) on high earners. I mean, why should we tolerate their bellyaching about fairness when they are so much richer than dollar-a-day peasants? If the American middle class can't complain about their situation, and being a discussion of austerity this implies decreases in their services and an increase in their taxes and unemployment, then I only hope you are consistent with your reasoning and demand that the well-to-do remain silent as we soak them to plug our budget hole.